|12 Months Ended|
Dec. 31, 2019
Note 5 - Leases
The Company adopted ASC 842 as of January 1, 2019, using a modified retrospective approach and applying the standard's transition provisions at January 1, 2019, the effective date. The Company made an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months or less.
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company's leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company's leases as the reasonably certain threshold is not met.
The Company does not own any real property. It currently leases office space located at 275 Madison Avenue, New York, NY. The lease is for 5,790 square feet with an expiration date of September 6, 2022, with a current annual rate of $341,610 for the remaining life of the lease. The Company is also responsible for certain other costs, such as insurance, taxes, utilities, and maintenance. The Company issued a letter of credit of $390,825 in connection with the lease and maintains a $391,327 certified deposit as collateral for the letter of credit. For accounting purposes, this lease is treated as an operating lease.
In 2017, the Company also entered into a license agreement for furniture and fixtures located at its office space. Pursuant to the terms of the agreement, the Company leases the furniture and fixtures and tenant improvements located in the office space for the same term as the office space for $7,529 per month. At any time during the term of this amended agreement, the Company has the right to purchase the furniture, and fixtures. For accounting purposes, this lease is treated as a finance lease.
In December 2018, the Company entered into a five-year lease agreement for office equipment and services for $906 per month and the capitalized value associated with the lease agreement was $16,078. For accounting purposes, this lease is treated as a finance lease.
Upon adoption of ASC 842, the Company recognized $1.2 million of right-to-use assets as operating leases and $0.3 million of right-to-use assets as finance leases. The Company also recognized $0.9 million of long-term operating lease obligations, net of the current portion of $0.3 million and $0.2 million of long-term finance lease obligations, net of the current portion of $0.1 million.
The components of lease expense are as follows:
Supplemental cash flow information related to leases are as follows:
Weighted average remaining lease terms are as follows at December 31, 2019:
As the Company's leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. Below is information on the weighted average discount rates used:
Maturities of lease liabilities are as follows:
The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef